CHAPTER 4

COMPLETING THE
ACCOUNTING
CYCLE
Accounting Principles

Chapter
4-1
 Using A Worksheet

Worksheet
A multiple-column form used in preparing
financial statements.
Not a permanent accounting record..
It is optional.

Chapter
4-2
 Steps in Preparing a Worksheet
Illustration 4-2

Chapter
4-3
 Closing the Books

At the end of the accounting period, Closing

entries are madeto make the accounts ready for
the next period.

Chapter
4-4
 Closing the Books

Note:
Owner’s Drawing is closed
directly to Capital and not
to Income Summary
Owner’s Capital is a
because Owner’s Drawing permanent account; all
other accounts are
is not an expense. temporary accounts.

Chapter
4-5
 Closing Entries
🌠 Closing revenues
RevenueS
Income summary

🌠 Closing expenses
Income summary
Expenses

🌠 Closing Income summary

I.S credit balance = profit I.S debit balance = Loss
Income summary Capital
Capital Income summary

🌠 Closing Drawings
Capital
Drawings
Chapter
4-6
 Example
Below is the adjusted trial balance of Rayan Co. as on December
31, 2023, Journalize the closing entries.
Adjusted
Trial Balance
Account Titles Dr. Cr.
Cash 2.500
Accounts Receivable 1.800
Roofing Supplies 140
Equipment 6.000
Accumulated Depreciation 1.400
Accounts Payable 1.400
Unearned Revenue 130
Owner's Capital 7.000
Owner's Drawings 600
Service Revenue 3.170
Salaries Expense 1.050
Miscellaneous Expense 200
Supplies Expense 960
Depreciation Expense 200
Salaries Payable 350
Totals 13.450 13.450

Chapter
4-7
 Closing revenues
Service revenue 3,170
Income summary 3,170

Closing expenses
Income summary 2,410
Salary expense 1,050
Supplies expense 960
Depreciation expense 200
Miscellaneous expense 200

Closing Income summary

Income summary 760
Capital 760

Closing Drawings
Capital 600
Chapter
Drawings 600
4-8
 Preparing a Post-Closing Trial Balance

Purpose is to prove the equality of the permanent

account balances after journalizing and posting of
closing entries.
Post-Closing
All temporary accounts Account Titles
Trial Balance
Dr. Cr.
will have zero balances. Cash $ 2.500
Accounts Receivable 1.800
Roofing Supplies 140
Equipment 6.000
Accumulated Depreciation $ 1.400
Accounts Payable 1.400
Salaries payable 350
Unearned Revenue 130
Capital 7.160
Totals $ 10.440 $ 10.440

Chapter
4-9
 Summary of the Accounting Cycle
Illustration 4-12
1. Analyze business transactions

9. Prepare a post-closing 2. Journalize the

trial balance transactions

8. Journalize and post

3. Post to ledger accounts
closing entries

7. Prepare financial
4. Prepare a trial balance
statements

6. Prepare an adjusted trial 5. Journalize and post

balance adjusting entries

Chapter
4-10
 Correcting Entries—An Avoidable Step

Correcting entries
are unnecessary if the records are error-free.
are made whenever an error is discovered.
must be posted before closing entries.
Instead of preparing a correcting entry, it is possible
to reverse the incorrect entry and then prepare the
correct entry.

Chapter
4-11
 Correcting Entries—An Avoidable Step
At Batavia Company, the following errors were discovered after
the transactions had been journalized and posted. Prepare the
correcting entries.
1. A collection on account from a customer was recorded as a
debit to Cash and a credit to Service Revenue for $780.

Incorrect Cash 780

entry Service revenue 780
Correct Cash 780
entry Accounts receivable 780
Correcting Service revenue 780
entry
Accounts receivable 780
Chapter
4-12
 Correcting Entries—An Avoidable Step
2. The purchase of supplies on account for $1,700 was recorded
as a debit to Store Supplies and a credit to Accounts Payable
for $1,500.

Wromg entry < Correct entry ➡ make same wrong entry for the difference

Incorrect Store Supplies 1,500

entry Accounts payable 1,500
Correct Store Supplies 1,700
entry Accounts payable 1,700
Correcting Store Supplies 200
entry
Accounts payable 200
Chapter
4-13
 Correcting Entries—An Avoidable Step
2. The purchase of supplies on account for $1,570 was recorded
as a debit to Store Supplies and a credit to Accounts Payable
for $1,750.

Wromg entry > Correct entry ➡ reverse wrong entry for the difference

Incorrect Store Supplies 1,750

entry Accounts payable 1,750
Correct Store Supplies 1,570
entry Accounts payable 1,570
Correcting Accounts payable 180
entry
Store Supplies 180
Chapter
4-14
 Reversing Entries

Reversing Entries
Companies make a reversing entry at the beginning of the
next accounting period.
Each reversing entry is the exact opposite of the
adjusting entry made in the previous period.
Optional

Chapter
4-15